Tuesday, May 24th, 2011...1:07 am

Is Wall Street LinkedIn?

As I wrote about in a previous blog post, I’m paying close attention to this new wave of digital companies that are going public. The most recent IPO was for LinkedIn and it was huge.

It’s not hard to find the news coverage but here’s the quick recap. LinkedIn, a business/networking social network, priced it’s offering at $45 (high end of filing range that started at $32-$35). On May 18th it hit the market at $84 and shot up to $122 before coming back down a bit. It’s currently at $88. This gives it a market cap of $8.34Bn. This makes it a way more valuable company than brick and mortars such as RiteAid, Goodyear Tire, Kodak, or Office Depot. In 2010, LinkedIn generated $243MM with a meager profit margin of 6%.

The bull or the bear in the room is if this is the start of a new internet bubble. Insatiable demand for a public offering is reminiscent of the hey day of the last dot com boom… and eventually bust. The consensus seems to be no though. Experts argue that web companies now have real revenues and sustainable business models. You’ll hear all this mumbo jumbo on how PE ratios are rational. Here’s Price Waterhouse telling us valuations are justified.

But something is up. The slick Wall Street bankers shouldn’t be undervaluing a new issues value by 50%. (Not like LinkedIn cares, they still own 90% of their shares at the new, elevated stock price.)

Your initial reaction to LinkedIn is probably based on if and how you use the site. That’s part of the gift and the curse of the consumer web. If you’re in sales, recruiting or at a startup, it is an incredible useful service. I happen to be doing all three so I see lots of value and even more potential in what it can be. But if you’re in finance, education or a union position I’m not sure if LinkedIn is worth the few minutes it takes to setup an account.

LinkedIn has steadily grown to more than 100 million members. It’s in a great position to be the dominant job site, career site and networking site. It is a more useful tool than many of the initial web companies in its space (Monster, Hot Jobs, Vault, CareerBuilder, The Ladders.)

At the same time, LinkedIn has not undergone the same explosive growth as other hot web companies like Twitter, Facebook or Zynga. Rather, it’s developed at slow and steady pace with tight execution and strong leadership. It’s product improvements and member growth has been subtle. Many users still aren’t sure what you’re supposed to do once you are there unless you are aggressively job-hunting.

At an $8Bn valuation, investors are banking on LinkedIn to reach it’s potential and continue to find lucrative ways to generate revenues. There’s no guarantee that will happen. I don’t think LinkedIn will ever hit any kind of inflection point that will turbo-boost its growth.

LinkedIn’s public offering feels like an NBA team drafting a four-year college starter with a lottery pick. Maybe he continues to develop and turns into Tim Duncan. Or maybe he has already slowed his growth and becomes nothing more than Shane Battier.

It will be interesting is to watch the next batch of digital companies that go public. My guess is that bankers and investors are sensing easy money on the IPO’s. If companies like OpenTable, LinkedIn and Demand Media have set a high benchmark with their valuations…well, then the party hasn’t even started yet.

I see more hedge fund and Wall Street money dabbling in startups these days. They might not get it exactly but they are sharks at sniffing out future opportunity. I haven’t seen that since I’ve been in the startup world. The bankers want to get a jump on the competition and build relationships with companies that might one day have a chance to kill it with an IPO. Money starts to float around a little too freely. It’s like an NBA agent scouring AAU ball to build relationships for the future. It’s hard to decide what to make of it.

Although it doesn’t seem healthy or rationale when a stock doubles on its first day, my gut tells me this is just the beginning. It’s easy for the experts to manipulate data to show that all this demand and value is justified. Companies like Facebook and Twitter are on the horizon and they have both unlimited potential and are already showing tremendous growth and impressive revenue. They are Lebron’s and there will be no shortage of hype. Maybe they will be better then Jordan (aka Google)? Wall Street likes winners. Lots of people make money that way.